Category: Finance

Economics Update

No Comments
Graph Pr0n, courtesy of Calculated Risk

Lets lead with some good news, the New York Bank of the Federal Reserve’s Empire State Manufacturing Index hit its highest level since November, 2007, and it’s actually positive, as opposed to the “falling less slowly,” good news we frequently see from hack economic reporters. (See top pic)

We also have home builder confidence, as measured by the National Association of Home Builders/Wells Fargo Housing Market Index, rising to its highest level in more than a year.

<Paul Harvey>And now, the rest of the story:</Paul Harvey>

We have the delinquency rates at commercial banks rising sharply in Q2, and the banks responded by tightening credit significantly.

This is pushing up the price of treasuries, and thus lowering their yields, as investors flee to quality.

As a result, the Fed has extended its TALF facility for commercial real estate, because they (correctly) see an impending crash.

Meanwhile, on the other side of the pond, where our other partner in corrupt “Anglo-Saxon Capitalism” goes to work, asking prices of UK homes fell by 2.2% this month, (that’s for the month, not annualized) with lack of credit to home buyers being a large factor in this move.

All in all, most of the signs are not good, which is why both crude oil and natural gas fell significantly today, and the US dollar and the Japanese Yen both rose.

What’s the Word For This???? Oh….Right….Regulation

No Comments

Put this down to “Elections can mean something.”

It looks like the case of Goldman Sachs’s allegedly purloined high speed trading software, aka “Flash Trading”, which a number of observers, myself included, have noted sounds a lot like front-running the entire stock market, now appears to be creating some regulatory push-back.

Basically, this allowed high speed servers co-located with the markets to execute trades in the milliseconds between when other trades are initiated, and when they are completed.

First, as a result of questions raised by Senator Charles Schumer, both Nasdaq and Bats Global Markets have decided to stop allowing brokerages to execute trades in this manner on their exchanges.

The Financial Times notes that this sort of automated trading currently accounts for over ½ of all US stock trades.

Additionally, it appears that the S.E.C. is looking at restricting the process.

Here is a simple solution: Require that any trading done by computers be delayed by at least 15 minutes from initiation to execution.

It also looks like the S.E.C will crack down on “naked” short sales, where an investor sells shares he does not have, as opposed to borrowing shares to sell, which they would purchase and return at a later date.

On the commodities side of the equation, the FTC is issuing new rules to restrict the ability of traders to manipulate the markets.

I’m wondering when the Giethner/Summers shoe will drop, and they will push for elimination of these regulations, because it makes US markets “less competitive.”

A Claude Rains Moment

No Comments

I’m shocked, shocked to find that gambling is going on here!

The New York Times is reporting that all though the bailout process, Hank Paulson was consulting daily, and in some cases hourly, with Goldman CEO Lloyd Blankfein, despite ethics requirements, and promises to Congress during his confirmation hearing, that would mandate that he keep the firm at arm’s length.

What’s more, he did not have similar conversations with any of the other investment firms.

It should be noted that many of these conversations were during the initial resolution of the AIG crisis, where the decision to honor what were clearly fraudulent credit default swap (CDS) contracts kept Goldman, and the rest of the Wall Street solvent, and out of government hands, protecting their high paying jobs.

Seriously, whether or not you want to go after Bush and His Evil Minions™ for things like torture, which we should, this is garden variety corruption, and not criminalizing policy, and should be pursued to the fullest extent of the law.

H/T The Big Picture.

The Chinese Have It Right

No Comments

Mark Ames is on it.

China, it seems, has put a number of millionaire investment types to death, while in the US, AIG gets another $242 million in bonuses:

China has executed two people for defrauding hundreds of investors out of millions of yuan in beauty parlour, cosmetics and property scams, crimes which the government described as a serious blow to social stability.

The two executed fraudsters, Du Yimin and Si Chaxian, “seriously damaged the country’s financial regulatory order and social stability”, the supreme people’s court ruled.

I don’t support the death penalty, but throwing these guys in a very dark hole for the rest of their lives, and ensuring that every dollar they have is forfeit, would be a very good thing.

It’s Bank Failure Friday!

No Comments

And here they are, ordered, and numbered for the year so far.

  1. Dwelling House Savings and Loan Association, Pittsburgh, PA
  2. Colonial Bank, Montgomery, AL
  3. Union Bank, National Association, Gilbert, AZ
  4. Community Bank of Arizona, Phoenix, AZ
  5. Community Bank of Nevada, Los Vegas, NV

So, Colonial Bank, the largest failure this year, failed. I mentioned it earlier:

All deposit accounts have been transferred to Branch Banking and Trust Company, (BB&T), Winston-Salem, NC (“assuming institution”) and will be available immediately. The former Colonial Bank locations will reopen as branches of BB&T. Each location will operate by the same schedule it did prior to this transaction.

Full FDIC list

Goldman Says Curbing Speculators May Disrupt Markets

No Comments

Well, isn’t that special, Goldman Sachs thinks that we as a society owe them the right to rape us:

Goldman Sachs Group Inc., the bank that makes the most money from commodities, fixed-income and currency trading, said attempts to curb speculation may be “disruptive” to energy markets.

“The role that is played by non-traditional participants such as index investors and other financial participants often has been mischaracterized,” Don Casturo, a Goldman Sachs managing director, said today at a Commodity Futures Trading Commission hearing in Washington.

Somehow, I think that your being hung from a lamp post when the revolution comes would be more disruptive.

Unfortunately, it appears that Timothy “Eddie Haskell” Geithner and Lawrence “Never Right in the Real World” Summers largely agree.

Economics Update

No Comments

You know, someone had better tell the ordinary people of the US that things are getting better, because they are not buying it. 63.2 in August, down from 66 in July.

What’s more, we are seeing more signs of deflation, with consumer prices falling by 2.1% year over year, the biggest drop since January, 1950.

What’s more, commercial real estate is going through the economy like a guy in a hockey mask through a road trip of teenage girls in a slasher flick, with commercial mortgage backed bonds falling, which has driven up their yields, and commercial real estate prices falling by 17% in the first ½ of the year.

We do have some good news in industrial production, where output rose by ½%, beating expectations, largely on “cash for clunkers”.

The confidence figures had currency traders moving to the Yen, and it also pummeled both crude oil and wholesale gasoline futures.

Will This Bank Make Tonight’s List

No Comments

There are reports that Colonial BancGroup is near collapse, and desperately attempting to sell itself off to BB&T.

If it fails, it would be the largest failure so far this year, and the 6th largest bank failure ever.

Of note is the fact that if the bank fails, then about 25% of all “warehouse lending” goes away.

Warehouse lending is a form of short term lending used most often by folks like independent mortgage brokers.

There would be some real repercussions here in the housing market, even with independent brokers having a much smaller piece of the pie than they did 3 years ago.

Something Smells Very Fishy Here

No Comments

Remember that guy who allegedly stole Goldman Sach’s proprietary high speed trading software? You know, the stuff that ran on their co-located servers in the exchanges, and so as to engage in front-running the entire market?

Well, it looks like there is a no jail time deal for Sergey Aleynikov in the offing about this.

Goldman Sachs has apparently folded like a bunch of overcooked broccoli, after the defense got a ruling saying that said that they were to be given access to all relevant personnel records.

So, Goldman Sachs, that great vampire squid wrapped around the face of humanity,* the folks who think, probably correctly, that they own the United States of America, acted like a prison bitch when confronted with the possibility of his reviewing his own personnel file???

Something is very wrong here.

What on earth are they hiding?

FWIW, any tips received will be kept in strictest confidence.

*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.

Economics Update

No Comments

Retail sales numbers courtesy of Calculated Risk

It’s Jobless Thursday, and initial claims rose by 4,000 to 558K, with the 4 Week moving average increasing to 565K from 556.5K, and continuing claims, falling by 141K to 6.2 million, though for the latter, I’m not sure how much is people exhausting claims and moving to extended benefits, and how much is people finding work.

My money is on a negative interpretation of the data, what with retail sales falling in July. (see graph pr0n)

In Europe, Germany’s and France’s GDP both rose at an annual rate of 0.3%, which has people shouting that they’ve left the recession, but a recession is more than raw GDP numbers, and industrial output in the EU tanked in June.

I’m a pessimist….I see it as a pause, not a reversal, we still have more down to go.

All in all, when one considers the that 35% increase in bankruptcy filings in the 2nd quarter , the abysmal foreclosure numbers, and the fact that video game sales are down for the 5th straight month, I just don’t basis for anything like a robust recovery.

In T-Bill news, I’m very confused.

First, the 3-year notes rose, then the 10 year notes fell, and today, 30 year Treasuries rose, and I cannot make any sense of that. (bonds rising=yields falling, and vise versa)

If Treasuries continue to rise though, it might reverse the reverse the rise in rates that has a depressed mortgage demand.

In any case, the economic news from Europe had the dollar tanking versus the Euro, to $1.4295:€1.0000, and it also pushed oil marginally higher.

You Think That Housing is Recovering?

No Comments

Calculated Risk flags a survey showing that about 63% of all home sales are distressed in one manner….Look at the graph, and it appears that ¼ of these are “trashouts”. (!)

This is confirmed by the fact that foreclosures hit a new record in July.

CR also notes, citing a report from Campbell Communications, (PDF, and also the source of the pie graph) that only 29% of purchases are being made by current home owners…..The rest is new home buyers and investors, so there is very little “move up” buying too.

Economics Update

No Comments

Trade Deficit Graphs Courtesy of Calculated Risk

The lede today is that the Federal Reserve Open Market Committee (FOMC) med and has issued its report.

Rates are staying where they are, but they are winding down their bond purchase program, and they seem to be seeing a light at the end of the recession tunnel.

You can read their full statement here.

Unsurprisingly, their upbeat attitude pushed the prices down, and hence the yields up, on 10 year US treasuries.

Me, I’m not the optimistic type, and with home prices declining 15.6% year over year, as foreclosures push down prices, and there is also tremendous amount of Shadow inventory out there, where banks are not listing houses on the MLS in order to support prices.

In any case, mortgage rates are on the rise again, which has depressed mortgage applications, particularly those for ReFis.

In addition, further indicators of what is going on in the real economy, specifically back to school sales and pay raises are both trending in the direction of awful.

On the trade deficit, there has been an increase in the US trade deficit, (see graphs) but this is not an artifact of increased demand for goods and services, but of rising oil prices, which, by the way, were up today.

We are also seeing a deflationary spiral in Japan, where wholesale prices fell by 8½% year over year in July.

Still, it appears that the Fed’s optimism has driven the dollar up today.

L’Affaire Madoff About to Get Interesting

No Comments

Bernie Madoff’s former CFO, Frank DiPascali, has pled guilty to 10 counts regarding the Ponzi scheme. (see also here)

What makes this interesting is that he is “cooperating with authorities.”

Madoff simply pled guilty, and asked for nothing, and has refused to talk to prosecutors, which implies that he’s protecting someone, most likely his family, but DiPascali appears to be ready to dish dirt, which likely means that his wife Ruth, or his children who worked with him in the business, are going to have some interesting days ahead.

Economics Update

No Comments

We have some pieces of good news. The 1st is that non-farm productivity rose at a 6.4% annual rate, the highest rate since 2003, the 2nd is that wholesale inventories fell at more than twice the predicted rate, and the 3rd is that the Hotel Industry’s Pulse index (HIP) rose in July, for the first time in 19 months.

Both of these numbers are generally positive, though the numbers for productivity include a reduction in hours worked and worker pay, and a reduction in inventories is only a good thing to the degree to which we get to the end of that process.

On the less encouraging side of the spectrum, we have demand for US Treasuries increasing, which indicates a return to risk aversion, and the Baltic Dry Index has fallen for a 9th straight day, which indicates a big drop in international trade.

In energy, we have oil falling below $70/bbl, and in currency, the dollar fell, particularly against the Yen.

Economics Update (Yesterdays)

No Comments
Temporary Help Numbers, H/T The Big Picture

I was going to post, but thunder storms came through, and even with a surge protector, I shut down.

It was a big day for central bank news, with reports that the Federal Reserve sending signals that it will stop purchasing Treasuries, which means that while rate hikes are not on the horizon, that quantitative easing (printing money) will be ended over the next few months.

Meanwhile, the granddaddy of zero interest rate central banks, the Bank of Japan, has decided to keep its rate at 0.1% (basically 0%), as the Bank Governor, Masaaki Shirakawa, says that he does not see a strong recovery once stimulus measures fade, “I can’t be confident about the strength of final demand after inventory adjustments and policy measures run their course.”

The Bank of Korea is of the same mind, with it keeping its benchmark rate at 2%, an all time low for the institution.

In employment, the decline in temporary workers seems to be moderating a bit (see graph).

In real estate, it looks like commercial real estate (CRE)is on a path to crash more catastrophically than residential real estate, Fitch Ratings predicting that delinquencies could exceed 5% by year’s end.

Basically, CRE is in a worse place than residential, because they typically take out 5 year mortgages that they have to refinance at the end of the term. If real estate prices go down, they cannot refinance, while in residential real estate, once you have a mortgage, you have one until the loan is paid off.

In China, exports have declined for the 9th straight month, and new loans fell, indicating that they are not out of the woods yet.

Meanwhile, in currency, there has been a flight to safety, driving up the US dollar, and to an even larger degree, the Japanese Yen.

In energy, oil fell, though it is still above $70/bbl, and gasoline prices have spiked, up 15¢ in the past two weeks.

Krugman is Wrong on Bernanke

No Comments

He has come out in favor of Ben Bernanke being reappointed as Chairman of the Federal Reserve.

Krugman’s argument is that Bernanke has been largely successful and effective in his efforts in battling the recession.

There are a number of other notables, such as Nouriel Roubini and Mark Thoma, who agree with Krugman, while Joseph Stiglitz and Calculated Risk suggests that his replacement be seriously considered, and Anna Jacobson Schwartz unequivocally calls for his removal.

Fundamentally, they base this decision on his performance, and it is reasonable to say that each of them have a better grasps of the details of this performance, but it misses the bigger picture: That both as an economy and as a democracy, the United States cannot afford to have another “Rock Star” Fed Chair.

The time of Alan “Bubbles” Greenspan has conclusively demonstrated that.

Ex-performance, the main argument for keeping Bernanke is that not doing so would be too disruptive, and it is the one most frequently made.

This fact demands his replacement at the end of his term.

The issue is not economics, nor his performance, but that a world in which an almost completely unaccountable figure is deemed crucial is simply not acceptable.

How is Hank Paulson Like Bernie Madoff?

No Comments

Well, Eric Falkenstein has the following take on Bernie Madoff:

Clearly, he understood phone calls are best. People who meticulously avoid email should not be trusted, because it is simply too calculating, as if they know they are regularly committing crimes. A phone conversation can always be disavowed, you just say you were talking about last weekend’s bar mitzvah.

And Felix Salmon, who has one of the sharpest minds in finance, notes a parallel with Hank Paulson in his exchange with Representative Jackie Speier:

Jackie Speier (D-Calif): Do you use email?

Hank Paulson: Do I use email? No, I don’t use it, personally.

JS: You don’t use it personally, or professionally?

HP: Yeah, I just don’t. So I’ve never used it for any business communications. Just never use it.

JS: So while you were secretary of the Treasury you never used email?

HP: No.

JS: How did you communicate with people?

HP: Telephone.

This does not prove that he is a dishonest person, though being a former head of Goldman Sachs certainly implies it, and as someone born in 1946, I understand how this might be a generational thing, but as someone who worked in finance, the value, and risks, of having a clear and incontrovertible copy of his discussions had to be clear to him.

If I were a betting man, I’d go with the fact that he knew that he broke the law regularly, and wanted deniability.